Tax-Loss Harvesting in Crypto: A Significant and Underexplored Opportunity for Financial Advisors

Abstract

Taxes can be a significant drag on investor returns. As a result, minimizing the impact of taxes on total returns has become a staple in the professional investment community and an important way in which financial advisers can add value for clients. One of the most common ways in which investors can achieve tax alpha is through tax-loss harvesting (TLH), which entails selling securities at a loss to offset capital gains on other securities sold at a profit. This article starts with a high-level introduction to tax-loss harvesting and then moves on to show how the return and volatility profile of crypto assets makes them, at least historically, uniquely well-positioned to benefit from TLH strategies.